Exposing Mitt Romney’s secret federal budget

Older voters will remember Richard Nixon’s secret (and phony) plan to end the Vietnam War in the 1968 campaign. Now, Mitt Romney is trying the same thing with his budget plan. He won’t disclose details, with his advisers arguing that doing so would hurt his campaign. Yes, it would. Because Romney’s budget goals are mathematically impossible to achieve. In reality, he would cause middle income Americans to pay higher taxes, budget deficits to skyrocket, or both. That’s a toxic combination, and voters shouldn’t buy this secret plan for a minute.

In the final presidential debate, Governor Romney claimed that his web site explains how he will balance the budget over eight to ten years despite income tax cuts for every American and huge increases in defense spending. Is it logical that deficits would be completely eliminated through tax cuts and more spending? Or, does this sound like a pig in a poke?

Start with taxes. Romney has campaigned for months on the central idea that, if elected, he would implement a 20 percent income tax cut for every American (reducing the first bracket from 10 percent to 8 percent, and so on). In addition, he would reduce the corporate tax rate by nearly 30 percent and repeal the estate tax, the alternative minimum tax and certain other taxes. It’s quite simple to calculate the amount of federal revenue which would be lost through all of these cuts, and non-partisan institutions have made the calculation. They would cost the federal budget $4.8 trillion over ten years. Let’s just call it $5 trillion.

Now, Romney insists that he would cut tax deductions to offset it. Four of the biggest tax deductions are those for mortgage interest, state and local tax payments, charitable contributions and employer-provided health care. Of course, he will not disclose how far he would have to cut these back to neutralize the budget impact of the $5 trillion tax cut. That’s because only drastic reductions in them would match that sum.

Further, Romney implies that only the wealthy use these deductions so most Americans shouldn’t worry about it. That’s false. The primary beneficiaries are middle income Americans. There are 24 million middle-class families, for example, who benefit from the mortgage interest deduction. And 37 million middle-class families who don’t have to pay taxes on health care coverage through their employer. And, it is these families who would lose under the Romney tax plan.

Let’s make this more specific. Assume Romney abolished every deduction used by families earning over $200,000 per year. Even then, his tax cut for this group is so big that it would more than offset this loss. Indeed, despite losing the deductions, these high earners would be ahead by $86 billion a year or nearly $1 trillion over ten years. By definition, either the middle class would pay this huge amount in additional taxes, or deficits would increase by that size. There is no third scenario.

Then, on spending, Romney starts by proposing a stunning $2 trillion increase in defense spending over ten years. This is remarkable because the Pentagon has not asked for this money, and it makes his balanced budget claims even less plausible. Even if Romney pays for his tax plan, it could only be done with a massive $8 trillion of domestic spending cuts over the next decade. But, Mr. Romney has only detailed cuts that add up to less than one-quarter of these savings, leaving $6 trillion of them to be figured out later.

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This is not possible. If Romney eliminated every dollar of domestic discretionary spending over these years, he would not save as much as $6 trillion. In other words, eliminate all federal support for education, research, border security, national parks and the like, and you still don’t save this much. President Obama is already cutting this category of the budget to its lowest levels as a share of the economy in 50 years, making cuts this deep both unrealistic and unwise. Therefore, Romney’s budget equation doesn’t work. That could be why the nonpartisan Committee for a Responsible Federal Budget concluded in March that his plan would produce gigantic budget deficits and a national debt that could reach almost 100 percent of GDP on his watch.

You can see why Romney’s budget plan is secret. It would both raise the tax burden on middle income Americans and cause record budget deficits. He is incorrect that revealing this would hurt his campaign. Actually, it would kill it. Are Americans really going to buy this snake oil? Not too likely.

The Winners and Losers Under Romney’s Tax Plan

Tax reform always has its winners and losers. Mitt Romney’s proposed plan to lower tax rates and limit deductions is no different, but it takes some digging to sort it out.

Mr. Romney has indicated that the plan is revenue-neutral, raising as much revenue as current law. He has also said it is “distributionally neutral” — meaning that the rich, middle class and poor would all continue to bear the same aggregate tax burden as they do now.

The idea seems to be that lowering tax rates would spur economic growth, and the reduction in revenue from lowering rates would be at least partly offset by increased revenue through limitations on deductions, credits and exclusions.

In recent weeks, the focus has been on whether the math “works” in the sense of whether cutting deductions for the wealthy would actually generate enough revenue to finance the proposed rate cuts. The implication, based on a study by the Tax Policy Center, is that in order to remain revenue-neutral, the middle class would have to share the pain of limited deductions. That would effectively shift the tax burden from the rich to the middle class and violate the stated goal of distribution neutrality.

What has been missing from the conversation is a discussion of who wins and loses if, as Mr. Romney insists, the plan sticks to its goal of distribution neutrality.

Distribution neutrality is a funny concept. Even if the plan is distributionally neutral, there still must be winners and losers. After all, if everyone paid exactly the same amount in taxes as before, then tax reform would not be reform: it would be the same as no change at all in the tax code.

Some people will pay a lot more and some will pay a lot less, even if the rich, middle class and poor each continue to pay the same amount in the aggregate. The fairness of the plan will depend on how finely calibrated each group is defined. Economists often group taxpayers by income quintiles, but a definition this broad places both middle-class homeowners and billionaires in the same group, even though ability to pay varies greatly.

Who are the likely winners and losers under the Romney plan? Most of the action will occur within this top quintile of taxpayers. These households make at least $100,000, and they make about $250,000 on average, before tax. In the aggregate, they pay most of the federal income tax burden.

Assume, as Mr. Romney suggested in one debate, that deductions, in total, would be limited to $25,000. The winners would be those who would enjoy the lower rates but do not take a lot of deductions. Their tax burden would shift onto heavy users of deductions.

And who is that? Let’s focus on three important tax breaks: the mortgage interest deduction, the charitable deduction and the deduction for state and local taxes. The pain would be concentrated in areas with a high cost of living like New York, New Jersey, Connecticut and California, where home prices and state and local taxes are high.

The mortgage interest deduction, under current law, is capped at a million dollars of mortgage debt. Under the Romney plan, even homeowners with a mortgage of $500,000 would quickly fill their “bucket” of deductions. Limiting the mortgage interest deduction is good tax policy, but it will also depress home prices at the high end and lead to substantial opposition from the real estate industry.

Now consider the charitable deduction. Under current law, the deduction is limited to 50 percent of one’s adjusted gross income — a limitation few people run up against. If total deductions are limited to $25,000, however, many people will use up that amount through the mortgage interest deduction, removing the tax incentive to donate.

Finally, consider the state and local tax deduction. The state and local tax deduction is an indirect subsidy to high-tax states like New York, New Jersey and California.

Allowing state and local taxes to be deducted from the federal return reduces the political pressure to keep state and local taxes low. Similarly, the exclusion ofmunicipal bond interest, another tax break that is on the table, mainly benefits state and local governments, while investors pay an implicit tax in the form of accepting a lower interest rate.

The point is not to defend these tax breaks. Rather, it’s to emphasize that tax reform is easy to talk about and hard to do. For every unsympathetic group like insurance companies or oil and gas multinationals, there’s a charity like the Red Cross or the Salvation Army. And one voter’s loophole is another’s livelihood.

Even in advance of the election results, lobbyists are getting ready for action. The Chronicle of Philanthropy reports that some large nonprofits sent letters toPresident Obama and Mr. Romney last week urging them to maintain the charitable tax deduction as is. This grouping of nonprofits also announced “a gathering on Dec. 4 and 5 to bring hundreds of its members to Washington to tell members of Congress that any tax changes that led to decline in private giving would devastate nonprofits and the people they serve.”

From an academic perspective, there is much to like in the Romney plan, with its broader base and lower rates. But it is not a win for everyone. And history shows that those who would be made worse off have great success in persuading Congress to maintain the status quo.

Mitt Romney paid tribute Thursday to four American diplomats killed in Libya, insisting that US power was vital in the Middle East, but he halted his criticism of President Barack Obama’s handling of the crisis.

Another day, another out-of-touch statement from Mitt Romney. Speaking today on ABC’s Good Morning America program, Romney said the typical middle-income household in America earned a quarter of a million dollars a year. Wouldn’t it be nice if, for once, we all lived in Romney’s America?

The actual figure is one-fifth of his estimate, the Associated Press reported this week relying on U.S. Census data. The federal agency found median household income—or the midpoint for the nation—is just over $50,000. Back to paying the bills…

“Both presidential candidates are fighting to win over working-class voters,” the AP said, stating the obvious. “President Barack Obama has defined “middle class” as income up to $250,000 a year. Obama wants to extend Bush-era tax cuts for those making less than $250,000. Romney wants to extend the tax cuts for everyone.”

The Romney campaign sought to clarify his remarks afterward. You can decide what needs clarifying by reading the ABC account of the interview and appearance with George Stephanopoulos. The exchange starts with Romney saying he hasn’t read an economic study that he cites in his speeches:

“When I pressed Romney on that point, he conceded that he actually hadn’t read the Feldstein report that he and Paul Ryan cite on the campaign trail.

“I haven’t seen his precise study,” he said.

“I said that there are five different studies that point out that we can get to a balanced budget without raising taxes on middle income people. Let me tell you, George, the fundamentals of my tax policy are these. Number one, reduce tax burdens on middle-income people. So no one can say my plan is going to raise taxes on middle-income people, because principle number one is keep the burden down on middle-income taxpayers,” he said.

Romney defined middle income as $200,000 to $250,000 a year and less.

“Number two, don’t reduce the share of taxes paid by the wealthiest. The top 5 percent will still pay the same share of taxes they pay today. That’s principle one, principle two. Principle three is create incentives for growth, make it easier for businesses to start and to add jobs. And finally, simplify the code, make it easier for people to pay their taxes than the way they have to now,” he said.“

Wouldn’t it be something if a presidential candidate read the economic reports that he cited in speeches, or knew what American households typically earned while trying to make economic issues the centerpiece of his campaign?

But we should give Romney credit where credit is due. While he has no idea what household economics are like for typical American homes, he is firm and clear-eyed in one department: his refusal to raise taxes on the people who can most afford to pay.

Teaching People to Hate Their Own Govt. Is at the Core of the Project to Destroy the Middle Class

How would you teach the middle class to hate their own government using a strategy that takes into consideration the political climate of the United States of thirty years ago?

August 21, 2012

The following is an excerpt from Dennis Marker’s new book15 Steps to Corporate Feudalism, published this year. In the text below, Marker shares one of the steps he sees as central to the destruction of the middle class since Ronald Reagan took over.

Your goal for this step is to figure out how to teach the middle class to hate their own government using a strategy that takes into consideration the political climate of the United States of thirty years ago.

Teaching the middle class to hate their government was an essential part of the plan to implement Corporate Feudalism. A middle class cannot exist without a strong government. This is because only a government has the power to stand up to the giant corporations of today’s world, or the powerful individuals and private armies of earlier times. It is the government that enforces the laws to protect the middle class from those who would like to become their economic rulers. That is why prior to the Industrial Revolution and the creation of the middle class all economies were run according to some version of the feudal system. If you want to put an end to the middle class and replace it with a feudal republic, you would need to change people’s perception of their government.

Obviously a government does not have to be on the side of its people, as can be seen by the existence of countless dictatorships and oligarchies throughout the world. Even the corporatocracy that currently exists in the United States falls far short of being on the side of its middle class. But US history shows that a government committed to serving its citizens can, in fact, help create and maintain a healthy middle class even in the face of powerful corporations whose only interest is maximizing their own power and profits.

It is like the story in old westerns of a big bad landowner who takes what he wants when he wants it, ruthlessly terrorizing a town without a strong sheriff. Any individual who tries to stop the landowner is beaten into submission or killed. The situation continues until the town finds a strong enough sheriff to regain control over the landowner and his gang. This is the Old West version of the feudal system. In westerns, the feudal lord comes first and the sheriff comes later. But in the United States of thirty years ago, the government was the strong sheriff keeping the late-twentieth-century feudal lords from taking what they wanted. As long as the government was supported by its citizens—particularly its middle class—no one could ride into town and steal what belonged to the people. But if the government were weakened or destroyed, a different situation would arise. The intent of the plan for Corporate Feudalism was to convince the middle class to fire their sheriff. And that’s just what happened.

Thirty years ago at the onset of the Reagan Revolution, the middle class basically appreciated and respected their government and believed that living in the United States was good for the middle class. They took their status for granted. The connection between what was good about the United States and its government was clear to the American public. For the most part, people believed the government was on their side and largely responsible for the high standard of living they enjoyed. Their government built the roads that made transportation easy. Their government made the laws and regulations that kept US workers safe at their jobs. Their government ensured that their food was safe. The labor strife that had empowered the middle class was now decades old, and the Vietnam War had ended, although not well. In many ways the United States of thirty years ago was a happy place, and most people understood their government’s role in keeping it that way. While there were problems, including the energy crisis, they seemed manageable. Not everyone was happy with everything the government did, of course, but there was general agreement that the US government was the best government anywhere.

Then the US government found itself in the crosshairs of the brand-new Reagan Revolution with no way to understand why it was under attack and no way to defend itself. For thirty years, it took blow after blow. Now, while still standing, that government is very different from what it was when Reagan took office. It is much weaker, no longer able to offer the protections or provide the services the middle class took for granted thirty years ago—the same kinds of services that many European democracies have continued to provide for their citizens during the period of US economic and social decline. And in its weakened state the US government has lost the support of the very citizens who depended on it the most, the middle class.

How did this happen? When Ronald Reagan got to Washington, he set out to convince the middle class that their government was their enemy, using his considerable powers of persuasion. The basic message of Reagan and the conservatives was that everyone would be better off if the federal government just disappeared. They were smart enough not to say this directly, however. Instead, they just landed one body blow after another without openly expressing their desire to destroy the government.

For example, Reagan attacked government workers, contending they were lazy, they wasted taxpayer money, and they involved themselves in issues they knew nothing about, like regulating large businesses and corporations. Within the first few years of Reagan’s election, the morale of the federal workforce plummeted as these employees saw their image shift from being considered public servants trying to make life in the United States better for everyone to being seen as lazy, despised bureaucrats wasting taxpayer money. Far from being a place where committed public servants worked to help the public, Washington, DC, became known as the place where crooks, thieves, and lazy workers stole taxpayer money for foolish purposes or their own personal benefit.

While federal workers had unions to protect their jobs, they did not have high-priced lobbyists and media consultants to safeguard their image. The unions representing federal workers came under the same harsh attack as the workers themselves, but the attacks went largely unanswered. The nation’s first movie star president had intentionally created this negative image of government workers, and he was convincing.

Following Reagan, other conservatives continued to lead the charge against the government, often using the same language the Reagan administration had employed. Few found language more effective than the Reagan one-liner, “I’m from the government and I’m here to help,” but they didn’t need to. The leap from John F. Kennedy’s “Ask not what your country can do for you, but what you can do for your country” to Reagan’s cynical and supposedly frightening “I’m from the government and I’m here to help,” had been successfully made.

In addition to waging a full-scale campaign against the government and its employees, the Reagan administration also implemented another practice that was equally destructive to the image of government—filling government positions with people who hated government, a practice that continues to this day. For those seeking to change the United States from a middle-class democracy to a corporate feudal republic, there are three major advantages to this practice. First, you give government jobs to your conservative friends and cronies. Second, you keep dedicated public servants who want to see government succeed out of government. Third, and most importantly, you have a cadre of conservative ideologues working inside the government to sabotage and destroy the government at every turn.

The advantages for conservatives of sabotaging and destroying the government are almost limitless. Looking at a few examples from George W. Bush’s administration shows why. Thirty years ago the Consumer Product Safety Commission (CPSC), a government agency committed to protecting the public by monitoring the safety of toys and other products, made a positive difference in people’s lives. However, during George W. Bush’s administration conservatives who filled many of the civil service positions and all of the politically appointed slots did not believe the government should be in the business of helping to protect the public, and they did everything in their power to avoid carrying out their responsibilities. When Congress tried to give the CPSC more money to do a better job of regulating products imported from China, for example, the Bush-appointed agency head refused. She said they had plenty of money to do their job, although in reality they weren’t doing their job at all. Then reports started coming in about unsafe toys originating in China. People were outraged, as they should have been, and blamed the government. By failing to do their jobs, the conservatives were encouraging people to give up on their own government, which was exactly what conservatives wanted.

Thirty years ago, in an effort to make their point, conservatives often exaggerated the examples of government corruption and waste, but during George W. Bush’s administration scandals involving everything from toys to military contracting became the norm. And who were the perpetrators of most of these crimes against the United States and its taxpayers? They were government-hating conservatives working inside the government, placed there for this very reason. Each time one of these conservatives was caught in another scandal, the American public’s view of government deteriorated a little more. If you believe in a government that helps its citizens, this seems bad. But if you believe that the best government is no government this seems great, so the people who wanted to establish Corporate Feudalism couldn’t have been happier.

That was the plan used by Corporate Feudalists to convince millions of middle-class people to hate their own government. Did you think of a more effective way to accomplish this goal? Or do you believe the plan that was used was the most effective one available?

Nation’s Lower Class At Least Grateful It Not Part Of Nation’s Middle Class

Despite their many struggles, the nation’s lower-class individuals say they cannot imagine being as deluded and disappointed as the nation’s middle class.

CHAPEL HILL, NC—A survey released Wednesday by researchers at the University of North Carolina found that despite the many challenges they face, the nation’s lowest-income individuals are nonetheless thankful they don’t have to endure the unique hardships of the nation’s long-suffering middle class.

According to the report, the 46 million Americans who fall below the federal poverty line, though struggling mightily, are at least glad they don’t have to live up to some rapidly vanishing American dream of advancing in their career, making more money, and improving their lifestyle, the way their middle-income counterparts do.

“The unrealistic expectations and false hope they experience must be unbearable,” Camden, NJ hotel clerk Allison Jacobsen told researchers, noting that while her $22,000 annual salary barely covers her rent and groceries each month, at least she doesn’t operate under the flawed assumption that her situation will ever improve. “A life spent constantly stressing out over a dead-end job or struggling to pay off a fixed 30-year mortgage on a continuously depreciating three-bedroom townhouse? It’s horrific.”

“Can you believe people actually have to live like that?” Jacobsen added. “I feel just awful for them.”

The survey found nearly 87 percent of the nation’s lowest earners take comfort knowing they are far enough down the economic chain that their children and grandchildren won’t possibly be able to live in circumstances any worse than their own, while 65 percent noted they have enough bills to worry about without the additional middle-class burden of making student loan payments or contributions toward a retirement plan that will probably go bust in the next market crash, anyway.

In addition, half of all destitute Americans said that while they lack medical coverage, at least they aren’t stuck paying increasingly high premiums for an increasingly terrible health insurance plan. And nearly all survey participants agreed they are grateful not to be trapped chasing “some sort of fantasy dream life” of middle-class American prosperity that no one in the year 2012 can ever possibly attain.

“I can’t even fathom what it would be like to drag yourself to work every morning actually believing that someday it will all pay off,” said Bronx, NY substitute teacher David McGrath, who along with his wife and 2-year-old son survives on food stamps. “Or to practically kill yourself for a job promotion or meager raise while under the delusion that you can work your way to the top. People waste the best years of their life doing that, and it’s a goddamn tragedy.”

Americans who live paycheck to paycheck and struggle to make ends meet told researchers they feel humbled by the travails of the middle class, and take solace knowing that however bad things seem, “some people out there have it a whole lot worse.”

“Imagine how traumatic it is to grow up feeling like a failure because you think you have some kind of control over what you achieve in life,” said Dana Joerger, a 31-year-old waitress and single mother of three in Stockton, CA. “I just hope and pray my family never falls into the endless cycle of disappointment that plagues our middle class.”

Researchers also found that people who were once part of the nation’s middle class experience a profound sense of relief upon moving down the country’s socioeconomic ladder and finding themselves on the bottom rung.

“Honestly, I can’t tell you how much better I feel these days,” said 42-year-old former IT technician Ryan Tunnicliffe, who last April lost his job and, subsequently, his house. “Just knowing I no longer have to strive for something completely and utterly out of reach is such a load off my mind.”

“I’m poor, and I’m going to stay poor,” Tunnicliffe continued while staring at his $320 weekly unemployment check. “It’s been very liberating.”

Reached for comment, several members of the nation’s upper class said they are “equally grateful” to have been spared the hardships of the middle class.

Dude, Why Did They Steal My Net Worth?

“I have no problem with people becoming billionaires—if they got there by winning a fair race, if their accomplishments merit it, if they pay their fair share of taxes, and if they don’t corrupt their society. Most of them became wealthy by being well connected and crooked. And they are creating a society in which they can commit hugely damaging economic crimes with impunity, and in which only children of the wealthy have the opportunity to become successful. That’s what I have a problem with. And I think most people agree with me.”– Charles Ferguson – Predator Nation

It is clear to me that a small cabal of politically connected ultra-wealthy psychopaths has purposefully and arrogantly stripped the middle class of their wealth and openly flaunted their complete disregard for the laws and financial regulations meant to enforce a fair playing field. Why did they gut the middle class in their rapacious appetite for riches? Why did the scorpion sting the frog while crossing the river, dooming them both? It was his nature. The same is true for the hubristic modern robber barons latched on the backs of the middle class. Their appetite for ever greater riches will never be mollified. They will always want more. They promise not to destroy the middle class, as that will surely extinguish the last hope for a true economic recovery built upon savings, investment and jobs, but it is their nature to destroy. A card carrying member of the plutocracy and renowned dog lover, Mitt Romney, revealed a truth not normally discussed by those running the show:

“I’m not concerned about the very poor. We have a safety net there. I’m not concerned about the very rich, they’re doing just fine.”

The data from the Fed report confirms Romney’s assertion. The poorest 20% were the only household segment that saw an increase in their real median income between 2007 and 2010, while the richest 10% saw only a modest 5% decrease in their $200,000 plus, annual incomes. Meanwhile the middle class households experienced a brutal 8% to 9% decline in real income. Table 2 in Part 2 of this article reveals why the poorest 20% were able to increase their income. Transfer payments (unemployment, welfare, food stamps, SSDI) increased from 8.6% of their income in 2007 to 11.1% in 2010. Government transfer payments rose from $1.7 trillion in 2007 to $2.3 trillion today, a 35% increase in five years. I’m sure the bottom 20% are living high on the hog raking in that $13,400 per year. Think about these facts for just a moment. There are 23 million households in this country with a median annual household income of $13,400. That means half make less than that. There are 58 million households that have a median household income of $45,800, with half making less than that.

The reason Mitt Romney isn’t concerned about the very poor is because his only interaction with them is when they cut the lawn at one of his six homes. The truth is the bottom 20% are mostly penned up in our urban ghettos located in Detroit, Chicago, Philadelphia, NYC, LA, Atlanta, Miami, and the hundreds of other decaying metropolitan meccas. They generally kill each other and only get the attention of the top 10% if they dare venture into a white upper class neighborhood. They are the revenue generators for our corporate prison industrial complex – one of our few growth industries. They provide much of the cannon fodder for our military industrial complex. They are kept ignorant and incapable of critical thought by our Department of Education controlled public school system. The welfare state is built upon the foundation of this 20%. It is certainly true that the bottom 30 million households in this country, from an income standpoint, do receive hundreds of billions in entitlement transfers, but Table 2 clearly shows that 80% of their income comes from working. The annual $72 billion cost for the 46 million people on food stamps pales in comparison to the hundreds of billions being dispensed to the Wall Street banks by Ben Bernanke and Tim Geithner, and the $1 trillion per year funneled to the corporate arm dealers in the military industrial complex. The Wall Street maggots (i.e. J.P. Morgan) crawl around the decaying welfare corpse, extracting hundreds of millions in fees from the EBT system and the SNAP program as they encourage higher levels of spending.

This is all part of the diversion. Forty five years after the War on Poverty began, there are 49 million Americans living in poverty. That’s a solid good return on the $16 trillion spent so far. It’s on par with the 16 year zero percent real return in the stock market. We have produced a vast underclass of ignorant, uneducated, illiterate, dependent people who have become a huge voting block for the Democratic Party. Politicians, on the left, promise more entitlements to these people in order to get elected. Politicians on the right will not cut the entitlements for fear of being branded as uncaring. The Republicans agree to keep the welfare state growing and the Democrats agree to keep the warfare state growing -bipartisanship in all its glory. And the middle class has been caught in a pincer movement between the free shit entitlement army and the free shit corporate army. The oligarchs have been incredibly effective at using their control of the media, academia and ideological think tanks to keep the middle class ire focused upon the lower classes. While the middle class is fixated on people making $13,400 per year, the ultra-wealthy are bribing politicians to pass laws and create tax loopholes, netting them billions of ill-gotten loot. These specialists at Edward Bernays propaganda techniques were actually able to gain overwhelming support from the middle class for the repeal of estate taxes by rebranding them “death taxes”, even though the estate tax only impacts 15,000 households out of 117 million households in the U.S. The .01% won again.

It is easy to understand how the hard working middle class is so easily manipulated by the corporate fascists into believing their decades of descent to a lower and lower standard of living is the result of the lazy good for nothings at the bottom of the food chain sucking on the teat of state with their welfare entitlements. I drive through the neighborhoods of West Philadelphia every day, inhabited by the households with a net worth of $8,500 and annual income of $13,400. They inhabit crumbling hovels worth less than $25,000, along pothole dotted streets strewn with waste, debris and rubbish. More than half the people in this war zone are high school dropouts, over 30% are unemployed, and drug dealing is the primary industry. When a drug dealer becomes too successful and begins to cut into the profits of the “legitimate” oligarch sanctioned drug industry, he is thrown into one of our thriving prisons. Marriage is an unknown concept. The life expectancy of males is far less than 79 years old. But something doesn’t quite make sense. Every hovel has a Direct TV satellite dish. The people shuffling around the streets all have expensive cell phones. There are newer model cars parked on the streets, including a fair number of BMWs, Mercedes, Cadillac Escalades and Volvos. How can this be when their annual income is $13,400 and they have $8,500 to their names?

This is where our friendly neighborhood Wall Street oligarchs enter the picture. These downtrodden people are not bright. They are easily manipulated and scammed. They believe driving an expensive car and appearing successful is the same as being successful. Therefore, they are easily susceptible to being lured into debt. Millions of these people represented the “subprime” mortgage borrowers during the housing bubble. The tremendous auto “sales” being reported by the mainstream media in an effort to boost consumer confidence about an economic recovery, are being driven by subprime auto loans from Ally Financial (85% owned by the U.S. Treasury/you the taxpayer) and the other government back stopped Wall Street banks. This is the beauty of credit. The mega-lenders reap tremendous profits up front, the illusion of economic progress is created, poor people feel rich for a while, and when it all blows up at a future date the middle class taxpayer foots the bill. Real wages for the 99% have been falling for three decades. You make poor people feel wealthy by providing them easy access to vast quantities of cheap debt. I’m a big fan of personal responsibility, but who is the real malignant organism in this relationship? The parasite banker class, like a tick on an old sleepy hound dog, has been blood sucking the poor and middle class for decades. They have peddled the debt, kept the poor enslaved, and have used their useful idiots in the media to convince millions of victims to blame each other through their skillful use of propaganda. They maintain their control by purposely creating crisis, promoting hysteria, and engineering “solutions” that leave them with more power and wealth, while stripping the average citizen of their rights, liberty, freedom and net worth (i.e. Housing Bubble to replace Internet Bubble, Glass-Steagall repeal, Patriot Act, TARP, NDAA, SOPA). Jesse cuts to the heart of the matter, revealing the darker side of our human nature:

“Sometimes when faced with problems that are confusing and troubling it is easier to think what someone tells you to think, particularly something that touches a deep and dark nerve in your nature, rather than carry the burden and ambiguity of struggling with the facts and thinking for yourself. Repeating a party line is a shorthand way of avoiding real thought. And the predators are always there to take advantage of it. They welcome trouble and often foment crisis in order to advance their agendas.”

“Anyone can be misled by a clever person, and no one likes to readily admit that they have been had. It is a sign of character and maturity to realize this, and admit you were deceived, and to demand change and reform. But some people cannot do this, even when the facts of the deception are revealed. It seems as though the more incorrect that the truth shows them to be, the louder and more strident they become in shouting down and denying the reality of the situation. And anyone who denies their perspective becomes ‘the other,’ someone to be feared and hated, shunned and eliminated, one way or the other.”

The HSBC measure of China’s PMI for June showed that the nation’s manufacturing sector slowed again, and may be in for a period of deep trouble.

The drop in the index created a string of eight consecutive months of dips as the measurement moved to 48.1 on a scale that marks 50 and above as expansion.

The drop raises the issue of what constitutes a recession in China. The traditional measure around the

world is a contraction of gross domestic product for two consecutive months. China’s economy has been white hot for a decade, with GDP increase of 10% or better most years. Based on that level of expansion, both China’s factories and its middle class consumers may have entered a time that they perceive as economic trouble if GDP drops to an expansion level of 6% or 7%.

China’s factory economy was built with infrastructure and a labor force size, with a foundation of a massive and growing export market. With many of the nations in Europe in traditional recessions and the U.S. economy cooling, the demand for China’s exports has already faltered. The trend in the West will only worsen in coming months.

China’s consumer population has moved from one of saving to one of use of earnings for the purchase of goods and services. Much of China’s GDP is based on this internal consumer activity. The double blow of a slowdown in purchasing activity among the nation’s middle class and a slackening of external demand could be devastating. And China’s consumers will balk at parting with money if they believe that their jobs, or at least a continuing increases wages, are in jeopardy.

It has been unthinkable until recently that the expansion of China’s GDP could drop much below 8%, particularly given the fire power the central government can muster for stimulus. But no injection of capital into the economy can completely overcome a sharp contraction of global consumption among individuals and business enterprises.

As the presidential contest heats up, President Obama and his Democratic allies will only intensify their attack on Mitt Romney’s Republicans for waging “war on the middle class.”

The best GOP response to this charge is to insist that liberals have been assaulting middle-class values for years—and it’s those values, not government giveaways, that built prosperity for the Great American Middle.

The outcome of this argument (and, very likely, of the election itself) will depend on how the public defines “middle class.” The left insists that you qualify for that status based on the money you earn: if you bring home too little—or too much—you’ve entered some other segment of the population.

But if Republicans can make the case that membership in the middle class is based more on worldview and values than pay stubs, they can claim the coveted title “middle-class defenders” and even make the case that it’s Obama, not Romney, who’s most out of touch with the American mainstream.

Polling data suggest that most Americans are already inclined to view the middle-class designation as something more than a matter of income: overwhelming majorities describe themselves that way even when their earnings put them far below or far above the normally assigned boundaries. A fascinating, in-depth study from the Pew Research Center (2008) showed that 41 percent of Americans with family incomes below $20,000 said they are middle class—even while the federal government classifies them as below the poverty line. At the other end of the spectrum, 33 percent of families with incomes above $150,000 also considered themselves middle class. A recent Washington Post-ABC News poll (April 2012) showed a full 59 percent who said they saw themselves as “middle class” or “upper middle class.” A scant 3 percent said they were “better off than that.”

With significant proportions of those who live in poverty—as well as those who draw six-figure incomes—claiming the same middle-class designation, it ought to be obvious that they share common values that count as more important than economic circumstances. Many families struggling at the edge of survival (including, no doubt, many immigrant families) feel proud of practicing middle-class virtues, and feel confident those virtues will bring their ultimate financial reality more in line with their cultural aspirations. Many other Americans (like the famous “Millionaires Next Door” celebrated in a series of bestselling books) may have earned enough to leave bourgeois life behind, but still they still choose to toil away at the daily grind, spending sparingly, attending church, saving for the future and otherwise honoring their middle class roots.

Those roots feature a range of behaviors and characteristics—frugality, hard work, faith, marriage, personal accountability, respect for authority—more commonly associated with the conservative side of the political spectrum. In fact, those values have historically drawn contempt both from academic and media elites as well as the urban poor, who mock that segment for its timidity, materialism, and conformity. The suburbs—natural habitat for the middle-class species—regularly draw contempt in pop culture, derided by urban activists as greedy, bland, and soulless while New Class sophisticates shun a universe of SUVs, soccer leagues, and second mortgages. No one can mistake the way that Manhattan, exclusive enclave of the very rich and the very poor, looks down on the middle-class neighborhoods of Queens or Staten Island.

When Democrats promise to defend the middle class, they don’t seem eager to defend middle-class values. Instead, they emphasize programs designed to keep middle-class numbers high by making sure that fewer people get rich—or stay poor. A family earning $250,000 a year and with, say, five children may well consider itself middle class, but in President Obama’s oft-expressed view, that family counts among “the millionaires and billionaires” who need to pay more to the government. The left’s effort to promote middle-class numbers involves twin priorities: to give enough money to poor people so they can join the bourgeoisie and to take enough money from prospering people so they’ll feel less able to wander away from the middle-class reservation.

To conservatives, this redistributionist agenda constitutes an affront to the self-reliant approach that enabled prior generations to rise to the middle class in the first place. Taking wealth from people who earned it and giving it to people who didn’t may, arguably, advance the economic interests of Middle Americans, but it also profoundly violates their traditional sensibilities.

And nothing offends those sensibilities more profoundly than profligate spending and runaway debt. In a memorable column about food-stamp fraud, Warren Kozak writes: “My grandmother did not serve on the President’s Council of Economic Advisers. She did not have an MBA from Harvard. She never went to high school because she had to go to work to support her family. But she gave me an astute piece of financial advice when I was about to enter the world. ‘Never,’ she told me, ‘spend more than you earn’ and ‘always try and save a little something.’”

Nearly every middle-class American has heard similar advice from a grandparent, parent, uncle, or godfather, and on this basis Mitt Romney might actually claim the advantage over his presidential rival when it comes to staying in touch with middle-class values. Despite their vast wealth, the Romneys famously live below their means, flying coach class when they use commercial airlines, with Mitt idiosyncratically ironing his own shirts in hotel rooms rather than sending them out to be pressed. During his early childhood, the candidate’s father (who never earned a college degree) struggled to make his way in business, while Obama’s parents were both globe-trotting, left-leaning academics who ignored financial considerations while pursuing their research and advanced degrees.

For Romney, even the infamous dog-on-the-roof vacation was a long road trip in the family station wagon—the sort of car that a chic, sophisticated, big-city couple like the Obamas would scrupulously avoid. Even as a recent law-school graduate, young Barack managed to take Michelle on an exotic and expensive extended vacation in Bali. By his own account, he chose to launch his ambitious and costly state-senate campaigns before he’d made much dent in paying off tens of thousands of student loans—the sort of bold, arguably irresponsible move that defies the essence of bourgeois caution.

In fact, nearly everything about the president’s biography and his astonishing rise shows him consistently free of the restraints of convention most commonly associated with Middle America— and endears him to his admirers as the hippest president ever to occupy the Oval Office, or at least the coolest customer since JFK. Romney, by contrast, comes across as hopelessly, incurably square and he would count as the least trendy, most Ozzie-and-Harriet president since Ike.

But this dorky nature may enable Romney, of all people, to stand up as the defender of the middle class, far more representative of its suburban values than his cosmopolitan opponent. The Great American Middle has never been hip, or cool, or stylish, drawing ill-disguised contempt from brooding intellectuals, aspiring autobiographers, and part-time professors like the present president. Romney, by contrast, offers a hale-and-hearty, Midwestern Rotarian aura that much of Middle America may find far more down to earth.

In 2008, Barack Obama ran most strongly among voters earning less than $30,000, and those who brought home more than $200,000. Among the 50 percent of the electorate who reported family income between $50,000 and $150,000, McCain actually won—with a narrow majority.

Romney can improve on that showing and win the election by tagging Obama as the candidate of the top and the bottom, claiming the Great American Middle as his own. He could do so by emphasizing his ongoing identification with the middle class and its core values, while showing his disapproval of the trendy avatars of the hyper-educated New Class.

Republicans can appeal to wavering suburban voters most effectively if they clinch the case that the real war on the middle class is cultural, and not just economic. Stylistic contrasts between the candidates could well benefit Mr. Square as much as Mr. Cool, while conservatives make the argument that middle-class survival is, ultimately, a matter of soul more than social programs.

Want to participate in the American Dream, go buy a lottery ticket. It will give you a better chance of acquiring that house on the corner with the white picket fence than hard work ever will.

The net worth of the average American family dropped from $126,000 to $77,000 between the years 2007 and 2010. A large chunk of that decline is due to the housing bubble that burst at the beginning of the Great Recession, but another factor is the stagnation, or outright decline, of wages paid to the working man. Americans, especially the middle classes, have grown poorer through no fault of their own. They have little to no savings, and many of their homes are underwater.

On the flip side, the top 10% of our nations earners saw a rise in income. How is this possible, or fair, when the rest of us don’t have two nickles to rub together. American corporations are sitting on piles of money – see Exxon Mobil and General Electric – while doing nothing for the country that helped make them successful. Instead, they are outsourcing jobs overseas in search of more profits. Where does it end.

The decline of the middle class, combined with the prosperity of the wealthy elite, has led to a disparity in income not seen since the Great Depression. Historically, the middle class is the engine that drives our economy. The rich can not, or will not, support the economy on their own. Yet the middle class, with their loss of income, are incapable of stopping the current trend. Disposable income is nonexistent when you make minimum wage.

Most families I know have two wage earners yet are barely making ends meet, and any savings they may have had have been erased by the last three years of the recession. They see their kids on weekends and after work, that is if they aren’t working six-day weeks or overtime. Is that any way to live?

For most Americans, their home is their main investment. Stocks are for the rich and well to do. But because the housing bubble burst, people will have to put off retirement until their late sixties or early seventies (and the way things are, due to Social Security and Medicare being in dire straights, the delay will be mandatory.) People working into their seventies will not be an aberration, it will be the norm. All because the rich want to get richer, and to hell with everyone else.

Greed will be the death of capitalism, and we are seeing the beginning of the end. There is enough money to go around, but no one wants to share. The numbers don’t lie. Hard work will no longer help you get ahead, not at minimum wage, which is what the new jobs pay, and unions are a dying breed. You are on your own, as even the government has businesses best interests at heart. The people come second (if that high.)

This country was founded by elite white men for elite white men, and it has never changed. So get out there and play the lottery, and maybe you too can retire before you’re seventy. And if you happen to pass a poor person panhandling on the street you can tell him just what the rich people tell him, “Get a job, you lazy bum.”

China’s Missing Middle Class – Analysis

Two parallel narratives surround globalization and the trade imbalance between China and the United States. One side moans that competition with China has squeezed traditional U.S. manufacturing jobs and caused the middle class to disappear. The other side declares that a new Chinese middle class is riding the wave of China’s inexorable economic boom. A particularly hyperbolic headline in Forbes, for example, proclaimed the rise of China’s middle class to be “The Biggest Story of Our Time.”These statements are oversimplifications of a complicated relationship. Although the U.S. middle class has been squeezed and manufacturing has been outsourced to developing nations such as China, there has not been a corresponding rise in the Chinese middle class like that seen in the United States after World War II. Manufacturing jobs in the United States created a distinct middle class in the post-war years, but these now outsourced jobs do not appear to engender the same affluence in China.

China

Rather than a middle class of laborers in the manufacturing industry, China has seen disturbing levels of income inequality and the emergence of a new “elite” class at the same time that the United States is experiencing similar shifts. This has implications not only for China’s growth, but also for U.S. exports that stand to benefit from a healthy Chinese middle class of consumers. Moreover, the growing wealth disparity in China suggests that China’s embrace of free-market economics and unfettered globalization may result in the same social ills seen in the United States.

The Disappearing U.S. Middle Class

After World War II, the United States saw unprecedented and unreplicated growth stemming from the factories mobilized by war, suburbanization, and high consumption. Moreover, this growth was spread relatively equally among all sections of society. Mass production supported this economy as American workers, returning from the war and bolstered by federally funded job training and education, filled the factories and received relatively high wages. This meant that not only did the United States have a large manufacturing class; it had a large manufacturing class with disposable income – a consumer class. The cycle of high wages and high consumption spurred economic growth and prosperity.

However, the American middle class has shrunk in the past 30 years while income inequality has steadily grown as a result of both consumer and investor demands. Companies must balance the combination of competitive pressures, investors seeking to maximize returns on capital, and consumer demands for lower prices. In this balancing act, middle-skill workers tend to lose out. For example, in 2006, when the profitable Caterpillar, Inc. came under pressure from investors for higher earnings, new employee wages and benefits decreased by nearly $20 an hour. Caterpillar group president Douglas Oberhelman remarked soberly, “there is a balance that must be struck between being competitive and being middle class.”

Studies on income inequality in the United States have shown a hollowing out of the middle class. For example, between 1970 and 2001, CEO pay increased from roughly 30 times to 350 times as much as the average income; the popular Piketty and Saez studies conclude that the top .01 percent of earners’ income share rose dramatically from 0.5 percent in 1973 to roughly 6 percent by 2007; and the Economic Policy Institute found that income for the top fifth of earners grew by 49 percent between 1979 to 2009, compared to an increase of only 11.2 percent for the middle fifth and a loss of 7.4 percent for the bottom fifth. In conjunction with the low cost of wages and technological advances, globalized supply chains and cheap manufacturing provided another fix to the demands for cheaper, more profitable goods. Companies under constant pressure to reduce costs found an answer in overseas manufacturing.

Thus, it is little wonder that the United States has seen a precipitous decline in manufacturing jobs over the past 30 years. The New York Times recently published an article bemoaning the inexorable outsourcing of manufacturing jobs to China and other developing nations. While this will be cold comfort to those in the Rust Belt, optimists counter that the loss of jobs in the United States is balanced by the immense gains in developing nations. In other words, outsourcing represents a global rebalancing in which developing nations can now attempt to catch up to the more developed countries by underpricing them in goods and services. Although this view may hold some truth, evidence in China does not suggest the creation of a middle class of consumers similar to that of the post-war United States, nor does the evidence support the fast-paced rise of this class.

The Rumored Chinese Middle Class

Rumors of a rising Chinese middle class have been touted widely. However, the evidence supporting these claims remains conflicting at best. The “middle-class” jobs outsourced from the United States have not necessarily translated to “middle-class” jobs in developing nations, especially in China. Defining the middle class has always been a difficult venture, but on several fronts the Chinese middle class remains nascent.

Using wages as an indicator, the manufacturing jobs in China fall far short of providing a middle-class lifestyle. The China Dailyreports that the average manufacturing wage in Shanghai in 2008 was 42,311 yuan ($6,723) annually, the highest in the country. The same article also listed annual wages in other parts of China (excluding Beijing and Shanghai, where the cost of living spikes) at roughly 19,500 ($3,098) to 25,000 yuan ($3,972) annually. Even in Shanghai, these wages are below middle-class.

A 2005 study conducted by the State Statistics Bureau of the Chinese government used an income range of 60,000 ($9,534) to 500,000 yuan ($79,444) for a three-member household as the primary determinant of middle-class status. This report places factory workers at far below middle-class status, or possibly at the bottom, for a two-income household, and calculated only roughly 20 percent of the Chinese population as middle-class (to be sure, this report has received some criticism by Cheng Li of the Brookings Institute). And while wages are rising, they won’t reach middle class wages any time soon. For example, Foxconn Technology, which makes an estimated 40 percent of the world’s consumer electronics, recently raised its wages to about 2,200 yuan per month ($350) after a rash of suicides and bad press. Even at these increased wages, workers lack the human capital, access to healthcare or education, and consumer behavior that are generally indicators of a middle class. Moreover, the salaries at Foxconn are likely higher than other manufacturers that are less assiduously monitored by the press. Migrant workers, many of whom work in these “outsourced” factories, averaged about 1,690 yuan ($266.86) per month in income.

Perhaps a more important indicator of middle-class status is consumption behavior. A rising consumer class in China would drive economic growth and could also balance some of the trade deficit with the United States. The emergence of such a class would augur well for China’s purported goal of transforming its industrial manufacturing economy into a knowledge and services economy. However, a 2010 OECD report using consumption as an indicator found that the Chinese middle class constituted only 12 percent of the population. This is simply not large enough to drive the shift from a manufacturing-export economy to an innovation economy.

The absence of a substantial consumer class in China is particularly significant for the United States, because this consumer class presumably would demand U.S. goods. But since China’s entrance to the World Trade Organization in 2001, U.S. companies have been disappointed by the lack of consumer spending in China. In recent years, although exports of certain products like computer components, automobiles, grain, and chemicals have seen an encouraging rise, the U.S. trade deficit with China remains high at roughly $272 billion. Thus, looking at consumption, the explosive growth in the past 30 years has yet to create a significant middle class.

China still has a long way to go before it can claim a legitimate middle class capable of driving healthy economic growth through its own consumption, rather than relying on exports to other countries.

China’s New Elite

If China has been experiencing near double-digit growth in GDP yearly but has yet to see a robust middle class, where has all the growth gone? In fact, rather than creating a new middle class in China, outsourcing has contributed to the rise of a new elite class. It appears that the disproportionate benefits of China’s near 10-percent annual GDP growth over the last 30 years have fallen on a minority elite (not entirely unlike the current situation in the United States). Though growth has benefited all Chinese citizens to some extent, wage inequality has exploded. China’s Gini coefficient (a measure of inequality) has increased to roughly 45.3, approaching levels of dangerous inequality (compared to the U.S. score of 46.8 in 2009). Thus, rather than replicating the middle-class growth of post-World War II America, China appears to have skipped that stage altogether and headed straight for a model of extraordinary productivity but disproportionately distributed wealth similar to the contemporary United States.

At the same time that the United States was responding to the oil and stagflation shocks of the 1970s accompanied by growing globalization, China was responding to the devastations of the Cultural Revolution. Since the late 1970s, both countries have pursued similar market-oriented economic policies, which appear to have resulted in wage inequality and the absence of a robust middle class in both countries.

China’s “rising” middle class remains nascent and tiny as a share of total population. In order to have a true middle class capable of driving economic growth, China must increase this population several-fold, reduce income inequality, and increase consumption. Otherwise, it will not be able to transform from a commodity export economy to an innovation economy. Likewise, if the Chinese middle class never materializes, then the United States will have lost an opportunity for growth in its own exports. The arrival of a new elite class in China does not come from the throngs of factory workers, but more likely on the backs of those workers.

Recovering The Middle Class

This is not to say that a middle class in China will never rise, or even that it may not appear in the next few decades. However, under the current policies, the emergence of such a class is less likely than the media suggests. There are no easy solutions for reinvigorating the American middle class in a post-industrial economy, or for creating such a class in China.

However, the United States can create a new middle class of skilled and well-compensated workers capable of driving innovation and production by enacting appropriate economic policies such as eschewing protectionist policies that prop up failing industries, increasing federal funding for education and addressing poverty-related achievement gaps, incentivizing innovation through subsidies, and, to the extent that manufacturing occurs domestically, focusing on high technology like computer components (which have seen a rise in exports to China). These workers will also be consumers that can purchase products designed and perhaps even manufactured, at least in part, in the United States. At the same time, a more robust middle class in China will also purchase more U.S. goods.

The middle classes of China and the United States are inextricably linked. The United States need not fear the rise of China’s middle class but should see it as the rise of a billion consumers and an opportunity to meet those consumers’ demands. However, despite the claim of optimists in the media, the verdict is still out as to whether China’s growth will create a robust middle class or just income inequality.

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